China’s Dealers Warn of Inventory Glut

Carmakers in China need to lower their sales goals or increase incentives to shrink bloated vehicle inventories, the China Automobile Dealers Assn. tells Bloomberg News.

State-supported CADA estimates that stockpiles of unsold vehicles at Chinese dealerships grew to about a 60-day supply by May 31 from 45 days at the end of April. UBS Investment Research calculates that inventory is about 60 days for foreign joint venture brands and as much as 80 days for domestic brands.

The overhang is forcing dealers to sell cars at a loss to meet the mandatory sales targets set by automakers a burden dealers can no longer shoulder, says Luo Lei, CADA deputy secretary general.

Big foreign automakers continue to report strong sales in China. But those figures represent their sales to dealers not retail sales to consumers.

J.D. Power Asia Pacific said in April that one-fifth of the dealers in China it polled were unprofitable compared with 9% a year earlier.

China had about 21,000 dealerships at the end of 2011 compared with 16,000 outlets a year earlier, according to CADA.